Disability and Critical Illness Insurance: Why the Choice Is Not Straightforward
Disability Insurance (DI) and Critical Illness (CI) Products: Overview
Disability Insurance (DI) and Critical Illness (CI) Coverages: Overlaps
Scenario 1: DI vs CI Insurance Premiums: Office Employee (AKA “Safe Job”)
Scenario 2: DI vs CI Insurance Premiums: Construction Worker (AKA “Non-Safe Job”)
Scenario 3: DI vs CI Insurance Premiums: Business Owner
Scenario 4: DI vs CI Insurance Premiums: Senior Person
Disability and Critical Illness Insurance – Which to Choose: Summary
Choosing between disability insurance and critical illness insurance is a decision filled with complexities and nuances that go beyond simply comparing premiums and payouts. One of the primary confusions arises from the overlap in coverages between disability insurance and critical illness insurance. Both types aim to provide financial support in the event of serious health issues, yet they serve different purposes.
Disability insurance replaces a portion of your income if you’re unable to work due to an illness or injury. Critical illness insurance, on the other hand, provides a lump-sum payment upon diagnosis of specific conditions listed in the policy, such as cancer, heart attack, or stroke.
The cost of disability insurance is closely linked to one’s occupational class, with higher premiums for those in jobs deemed higher risk or seasonal. This categorization means that individuals in professions with greater physical demands or inherent risks—such as construction workers or miners—may face significantly higher costs for disability insurance. This aspect can make disability insurance less accessible or more expensive for those who potentially need it the most, complicating the decision-making process.
For freelancers, entrepreneurs, and others without a steady paycheck, obtaining disability insurance can be particularly challenging. Insurers often require proof of income to determine benefit levels, making the quoting and application process more complex for those with variable incomes.
Many people may already have some form of disability or critical illness coverage through group insurance plans provided by employers, unions, or associations. Additionally, government programs like the Workers’ Safety and Insurance Board (WSIB) in certain jurisdictions offer protection against work-related injuries and illnesses. Awareness of these coverages is essential to avoid unnecessary duplication and to identify any coverage gaps that private insurance could fill.
It is also important to note that your smoking status has a differing impact on disability insurance and critical illness insurance premiums and eligibility. Since many critical illnesses covered by these policies, such as heart disease and cancer, are directly linked to smoking, smokers may find critical illness insurance to be more expensive or harder to qualify for compared to disability insurance.
Before deciding on which one – or if both – are right for you, it’s crucial to understand these products on a deeper level. So, let’s dive in and learn more.
The table below provides a detailed comparison of disability insurance and critical illness insurance. Note that there are some areas of overlap between the two coverages.
| Disability Insurance | Critical Illness Insurance | |
| What does it cover? | Disability insurance replaces a part of your income for the duration of your disability. Your entire income is not replaced. | Critical illness insurance provides a lump sum of money that you can use in any way you see fit (e.g. for a treatment, modifications to your home, change of lifestyle) after you have been officially diagnosed with an illness named in the policy and have survived the waiting period. |
| How does it pay? | In monthly payments | One-time lump sum |
| What are maximum coverage limits? | 50%-60% of your gross income (pre-tax) | Usually it is up to $2M but can be impacted by your income (i.e. to be lower or higher in certain cases) |
| Are taxes paid on claim payments? | Disability benefits received aren’t taxable for: • Personally owned disability insurance policy • Personally owned disability insurance structured as an employee benefit | Lump-sum critical illness insurance benefits aren’t taxable for: • Personally owned critical illness insurance • Personally owned critical illness insurance structured as an employee benefit |
| Are insurance premiums tax-deductible? | If you own disability insurance personally, the premiums are considered a personal or living expense for income tax purposes and are not deductible. If a personally owned disability insurance policy is structured as an employee benefit, the cost of the premium payment is deductible to the employer as a salary expense. | If you own a critical insurance policy personally, the premiums are considered a personal or living expense for income tax purposes and are not deductible. If a personally owned critical illness insurance policy is structured as an employee benefit, the cost of the premium payment is deductible to the employer as a salary expense. |
| Is the insurance stackable | Stackable only up to a pre-determined cap which is not higher than typically 50%-60% of gross salary. | In general, stackable within reasonable limits (i.e. no multi-million dollar policies for somebody with low income). |
| Important to know | Your allowable maximum depends on your occupation class and the caps set out by the insurance company. | You can typically choose between being covered for three major critical illnesses: heart attack, cancer, stroke (which drive the majority of claims) or for 20+ critical illnesses including Multiple Sclerosis, major organ transplant, loss of speech, etc. |
| Example | John is diagnosed with a mental health condition (which is currently the largest driver of disability claims). His claim is approved and for the next 60 days he gets bi-weekly payments of 65% of his income. He actively practices self-care, visits a therapist, and takes medication prescribed by his doctor. After 60 days he feels much better and returns to work, thus ending his disability payments. | One day, Sarah receives the devastating news that she has been diagnosed with early-stage breast cancer. Thanks to her critical illness insurance, Sarah is eligible to receive a lump sum payment from the insurer upon confirmation of her diagnosis. This financial support allows Sarah to focus on her recovery without worrying about the impact of medical bills, loss of income during treatment, or additional childcare expenses |
It is important to note that some health conditions are unique based on the type of policy selected, but there is still some crossover between what is covered on disability insurance, and what is covered by critical illness insurance.
| Disability Insurance | Critical Illness Insurance | |
| What are some differences in conditions covered by each policy (no overlap) | • Pure injuries which are not considered critical illnesses (e.g. broken leg, arm, etc.) • Mental health issues | • Critical Illnesses that do not require being absent from work for a prolonged time • E.g. heart attack, minor stroke where a policyholder is able to return to work |
| What overlaps in conditions covered Note: This is relevant for CI policies that cover 20+ critical illnesses | • Any critical Illnesses that require time off work and impact the ability to work/earn money (e.g. Multiple Sclerosis (MS), major stroke, kidney failure, loss of speech, loss of sight, deafness) | |
If you are interested to read more about Disability insurance, here is a detailed overview of all long-term disability insurance components and all short-term disability insurance elements.
We compare a few typical scenarios, which results in significant differences between critical illness and disability insurance quotes. For all the scenarios we use the following coverage values:
| Scenario 1: Mid-age, office employee | Scenario 2: Mid-age, construction worker | Scenario 3: Mid-age, independent business owner | Scenario 4: A senior | |
 |  |  |  | |
| Profile | Male/female, 40 years old, no health pre-conditions, Class A (very low-risk job), non-smoker | Male/female, 40 years old, no health pre-conditions, Class D (higher risk/seasonal job), non-smoker | Male/female, 40 years old, no health pre-conditions, Class B (fairly low risk job), non-smoker | Male/Female, 60 years old, no health pre-conditions, non-smoker |
| Key scenario differences | • Somebody with a very safe job and low risk of injury • The person may already have some coverage with a company’s group insurance | • Somebody with an unsafe job and high risk of injury • Some categories of jobs already have worker compensation protection like WSIB | • Somebody in a managerial position with a relative safe job and low risk of injury • Typically, will not have group insurance • Income can vary strongly from month to month, making it harder to qualify for disability insurance | • Somebody who is a senior and has an increased risk of critical illnesses |
| Product recommendation | Priority 1: Disability insurance (as it is cheaper) Priority 2: Critical illness insurance to complement | Priority 1: Critical illness insurance (as it is better priced than disability insurance) Priority 2: Potentially rely on complementary protection like WSIB, if available | Priority 1: Critical illness insurance if disability insurance is not an option (e.g. the company is at the inception phase and income is not stable) Priority 2: Add disability insurance when possible (e.g. when income becomes more stable) | Priority 1: Disability insurance Priority 2: Carefully evaluate if critical illness (CI) insurance is a viable option due to potentially high CI premiums based on the age |
Job classes have a big impact on coverage, and also on the premium. See the table below for sample coverage limits. Remember, these are samples only.
Work with a broker to get the best solution and rate for your unique situation.
| Scenario 1: Mid-age, office employee | Disability Insurance | Critical Illness Insurance |
| Coverage limits | $5,250/month | $300,000 |
| Monthly premiums for a female applicant | $236.67/month* (Professional series product with generous coverage) | Basic CI (4 illnesses): $194.23/month** Traditional CI 24 illnesses: $203.84/month*** |
| Monthly premiums for a male applicant | $195.41/month* (Professional series product with generous coverage) | Basic CI (4 illnesses): $208.71/month** Traditional CI 24 illnesses: $228.68/month*** |
| Important to know | Additional riders like FIO (Future Income Option), COLA (Cost of Living Adjustment), and Retirement Protector come at extra cost. | Look for guaranteed renewable policies where the premiums can increase over a stated term. |
*Quote as of April 2024 from RBC Insurance (w/o FIO, COLA, and Retirement Protector riders that come at additional costs)
**Quote as of March 2024 from Ivari
***Quote as of March 2024 from Manulife
We just took a look at sample rates for an office worker. Let’s keep exploring how job class affects premiums. Remember, working with a broker will provide you with the best rate since your broker will compare policies and rates on your behalf.
| Scenario 2: Mid-age, construction worker | Disability Insurance | Critical Illness Insurance |
| Coverage limits | $5,250/month | $300,000 |
| Monthly premiums for a female applicant | $276.28/month* (Foundation series product with less generous coverage) | Basic CI (4 illnesses): $194.23/month** Traditional CI 24 illnesses: $203.84/month*** |
| Monthly premiums for a male applicant | $219.98/month* (Foundation series product with less generous coverage | Basic CI (4 illnesses): $208.71/month** Traditional CI 24 illnesses: $228.68/month*** |
| Important to know | Additional riders come at an extra cost | Look for guaranteed renewable policies where the premiums can increase over a stated term. |
*Quote as of April 2024 from RBC Insurance
**Quote as of March 2024 from Ivari
***Quote as of March 2024 from Manulife
Unlike employees, business owners are in their own job class. Here are some sample rates based on generous coverage.
| Scenario 3: Mid-age, Independent Business Owner | Disability Insurance | Critical Illness Insurance |
| Coverage limits | $5,250/month | $300,000 |
| Monthly premiums for a female applicant | $306.54/month* (Professional series product with generous coverage) | Basic CI (4 illnesses): $194.23/month** Traditional CI 24 illnesses: $203.84/month*** |
| Monthly premiums for a male applicant | $196.61/month* (Professional series product with generous coverage) | Basic CI (4 illnesses): $208.71/month** Traditional CI 24 illnesses: $228.68/month*** |
| Important to know | Additional riders like FIO (Future Income Option), COLA (Cost of Living Adjustment), and Retirement Protector come at extra cost. | Look for guaranteed renewable policies where the premiums can increase over a stated term. |
*Quote as of April 2024 from RBC Insurance (w/o FIO, COLA, and Retirement Protector riders that come at additional costs)
**Quote as of March 2024 from Ivari
***Quote as of March 2024 from Manulife
While not a business class, age does play a factor. Let’s look at the chart below to see how being a senior changes the premium.
| Scenario 4: A senior | Disability Insurance | Critical Illness Insurance |
| Coverage limits | $5,250/month | $300,000 |
| Monthly premiums for a female applicant | $540.13/month* (Professional series product with generous coverage) | Basic CI (4 illnesses): $452.52/month** (Term 10/Term to 70) Traditional CI 24 illnesses: $519.20/month*** (Term 10) |
| Monthly premiums for a male applicant | $501.41/month* (Professional series product with generous coverage) | Basic CI (4 illnesses): 622.62/month ** (Term 10/Term to 70) Traditional CI 24 illnesses: $724.69/month*** (Term 10) |
| Important to know | Additional riders like FIO (Future Income Option), COLA (Cost of Living Adjustment), and Retirement Protector come at extra cost. | Look for guaranteed renewable policies where the premiums can increase over a stated term. |
*Quote as of April 2024 from RBC Insurance (w/o FIO, COLA, and Retirement Protector riders that come at additional costs)
**Quote as of March 2024 from Ivari
***Quote as of March 2024 from Manulife
When considering insurance options to protect yourself and your loved ones from the financial impact of unforeseen health issues, disability insurance and critical illness insurance emerge as key components of a comprehensive insurance strategy. Both types of insurance provide essential coverage but serve different purposes, making them complementary in nature when tailored to an individual’s specific needs.
Disability insurance is designed to replace a portion of your income if you become unable to work due to a disability. This can be a lifeline, ensuring that you can continue to meet your financial obligations, from daily living expenses to mortgage payments, even if you’re unable to earn an income.
Critical illness insurance, on the other hand, provides a lump sum payment if you are diagnosed with one of the specific critical illnesses covered by the policy, such as cancer, heart attack, or stroke. This can help cover medical expenses not covered by your health insurance, or even be used for anything you choose, such as taking time off work to recover or making adjustments to your home to better accommodate your health needs.
While both types of insurance provide significant benefits, it’s important to note that they come at a cost higher than some other insurance products, like term life insurance. The premiums for disability insurance and critical illness insurance reflect the higher likelihood of a claim being made during the policy term. Therefore, deciding between these insurance products—or determining the right combination of coverage—should be made on a case-by-case basis, tailored to the individual’s occupation, health preconditions, and overall risk profile.
Working with an experienced insurance broker is crucial in navigating these complex decisions. A knowledgeable broker will have experience with both types of policies and access to products from multiple companies, allowing them to compare and contrast options to find the best fit for your situation.
At LSM Insurance, a division of Hub Financial, our brokers have these vital skills. With a deep understanding of both disability insurance and critical illness insurance, our team is equipped to offer guidance that aligns with your personal and financial needs. We pride ourselves on our ability to provide a personalized assessment, drawing from a wide range of products to ensure you receive the coverage that best suits your circumstances.
For those seeking to explore their insurance options further, we invite you to complete the quote form on this site a free assessment of your needs. This no-obligation chat with a broker is an opportunity to gain valuable insights and peace of mind, knowing that you’re making informed decisions about your insurance coverage.
